Even where there is a clerk’s default “The burden is on the plaintiff to establish its entitlement to recovery.” Bravado Int’l, 655 F. Supp. 2d at 189.

Here is an example of how lawyers purport to represent US Bank when in fact they are creating the illusion that they represent a trust and in reality they are representing a subservicer who is receiving orders from a master servicer of a nonexistent trust. As Trustee of the nonexistent trust USB had no active role in the nonexistent trust. As the inactive Trustee for a nonexistent Trust, no right, title or interest in the debts of homeowners were within any scope of authority of any servicer, subservicer or master servicer. Each foreclosure is a farce based upon assumptions and presumptions that are exactly opposite to the truth.

Given the opportunity to amend the complaint, lawyers for USB chose not to amend — because they could not plead nor prove the required elements of an active trustee. Because of that USB lacked standing to bring the action except as agent for an active trust or on behalf of the trust beneficiaries. But where the certificates show that the certificate holders do NOT have any interest in a mortgage or note (true in about 70% of all cases), then they too lack of standing. And if the Trust is not an active Trust owning the debt, note or mortgage then it too lacks standing.

Let us draft your motions and do the research necessary to draw the attention of the court to the fraud taking place under their noses. 202-838-6345

Get a consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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While this case discusses diversity and other issues concerning US Bank “as trustee” the reasoning and ruling clearly expose the truth about pleading irregularities by attorneys who purport to represent US Bank or a REMIC Trust.

A debt is an asset to anyone who owns it. Industry practice requires that for transfer of ownership, there must be an agreement or other document providing warranty of title, confirmation of the existence and ownership of the debt and proof of authority of the person executing the document. Go into any bank and try to borrow money using a note as collateral. The bank will require, at a minimum, that the debt be confirmed (usually by the purported debtor) and that each party in the chain show proof of purchase.

Without consideration, the assignment of mortgage or endorsement of the note is just a piece of paper.

When there is an assertion of ownership of the loan, what the banks and so-called servicers are actually saying is that they own the paper (note and mortgage) not the debt. In the past this was a distinction without a difference. In the era of patently f false claims of securitization, the debt was split off from the paper. The owner of the debt were without knowledge that their money was not under Trust management nor that their money was being used to originate or acquire loans without their knowledge.

The securitization sting is accomplished because the owners of the debt (the investors who sourced the funds) are unaware of the fact that the certificate they are holding is merely a promise to pay from a nonexistent trust that never was utilized to acquire the debts and whose ownership of the paper is strictly temporary in order to foreclose.

The failure to make that distinction between the real debt and the fake paper is the principal reason why so many people lose their homes to interlopers who have no interest in the loan but who profit from the sale of the home because a judgment was entered in favor of them allowing them to conduct a foreclosure sale.

This case also sets forth universally accepted legal doctrine even where there is a clerk’s default entered against the homeowner. The Judge cannot enter a judgment for an alleged debt without proving the debt — even if the homeowner doesn’t show up.

“When a default is entered, the defendant is deemed to have admitted all of the well- pleaded factual allegations in the complaint pertaining to liability.” Bravado Int’l Grp. Merch. Servs., Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 188 (E.D.N.Y. 2009) (citing Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). “While a default judgment constitutes an admission of liability, the quantum of damages remains to be established by proof unless the amount is liquidated or susceptible of mathematical computation.” Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); accord, e.g., Bravado Int’l, 655 F. Supp. 2d at 190. “[E]ven upon default, a court may not rubber-stamp the non-defaulting party’s damages calculation, but rather must ensure that there is a basis for the damages that are sought.” United States v. Hill, No. 12-CV-1413, 2013 WL 474535, at *1 (N.D.N.Y. Feb. 7, 2013)

“The burden is on the plaintiff to establish its entitlement to recovery.” Bravado Int’l, 655 F. Supp. 2d at 189.

Message to homeowners: Heads I win, tails you lose. Between Bartram and Desylvester the recurrent theme emerges as doctrine: If the homeowner wins a case the skids are greased for the bank to win the next round. The winner is treated as the party who SHOULD have lost and the loser is treated as the party who SHOULD have won. This fight is far from over.

“Following the Florida Supreme Court’s recent decision in Bartram v. U.S. Bank, N.A., 41 Fla. L. Weekly S493, 2016 WL 6538647 (Fla. Nov. 3, 2016), courts were left to interpret how Bartram would affect lenders’ reliance on breach letters issued more than five years prior to a foreclosure proceeding initiated after the dismissal of a prior action. Florida’s Second District Court of Appeal answered this very question in its opinion in Desylvester v. Bank of New York Mellon, et al., which indicates that lenders need not send a new breach letter in subsequent foreclosure actions filed after the dismissal of a prior foreclosure if the borrower has failed to cure the initial default.

*

In Desylvester, the Second District Court of Appeal affirmed the entry of final judgment of foreclosure in favor where the bank initiated a successive mortgage foreclosure action premised on the same date of default alleged in a prior foreclosure action, including “all subsequent payments due thereafter.” Consistent with the Bartram decision, the Court’s opinion confirms that, following the dismissal of a prior foreclosure action, a mortgagee is not barred from filing a subsequent action premised on a “separate and distinct” date of default––including a borrower’s continuing state of default––under the same note and mortgage.”

*

An ounce of truth and a lot of craziness. I think Bartram stands for the proposition that the statute of limitations does bar actions for payments due before the beginning of the current statutory period. As I suspected we have the Florida Supreme Court thinking they fixed a problem by legislating from the bench — returning the parties back to their original positions except for payments barred by the statute of limitations.

*

The second DCA has muddied the waters further in Desylvester v Bank of New York Mellon. The courts are continuing to search and twist looking for a hook on which they can hang their preconceived notion of how the case should turn out — i.e., for the banks. Dozens of SCOTUS decisions say these courts (not just in Florida) are getting it wrong and overstepping constitutional boundaries resulting in unfair consequences. This fight is not over.

*

The 2d DCA here stretches the problematic view of the Florida Supreme Court in Bartram v US Bank. A default letter was sent for an alleged default that is now barred by the SOL. I suppose it might be logical to say that the creditor could still file a foreclosure action for the payments that are not barred by the SOL. But this court goes further and says that the original default letter can still be used as the basis of the new foreclosure action.

*

The court is skipping over obvious ramifications of the Bartram decision whether you think that decision was right or wrong. If the parties are returned to their original position except for the payments barred by SOL, then the homeowner still has a right to a default letter that spells out the real number, as amended by application of the SOL, that is required to reinstate, and the disclosure of how that number was computed. Removing that requirement is removing (1) a basic element of the alleged “contract” (i.e., the mortgage instrument, paragraph 22 in most such instruments) and (2) the application of statutory laws governing the conditions precedent to filing foreclosure.

*

The 2d DCA opinion is plainly wrong and wrongful. Again pushing aside the notions that foreclosure is an action in equity that should only be used as a last resort, the Court has essentially stripped the homeowner of basic protections provided by statute and provided by law. The Bartram decision was bad enough. The 2d DCA decision is basically reloading the gun for what is at best a questionable party to foreclose, placing the homeowner on his/her knees and cocking the gun for the bank or servicer — neither of whom have any right to even be in court.. Under Desylvester the losing party in the first foreclosure is treated as the winner and the winning party is treated as the loser.

*

All of which prompts the the larger essential question: With the courts undermining due process at every turn in ruling for the banks under a political theory that the fall of the big banks will bring down the world order, how is anyone left going to trust in our institutions? And assuming the current polls and trends continue, what will be left of our society that will be worth saving?

There is a difference between the note contract and the mortgage contract. They each have different terms. And there is a difference between those two contracts and the “loan contract,” which is made up of the note, mortgage and required disclosures.Yet both lawyers and judges overlook those differences and come up with bad decisions or arguments that are not quite clever.

There is a difference between what a paper document says and the truth. To bridge that difference federal and state statutes simply define terms to be used in the resolution of any controversy in which a paper instrument is involved. These statutes, which are quite clear, specifically define various terms as they must be used in a court of law.

The history of the law of “Bills and Notes” or “Negotiable Instruments” is rather easy to follow as centuries of common law experience developed an understanding of the problems and solutions.

The terms have been defined and they are the law not only statewide, but throughout the country, with the governing elements clearly set forth in each state’s adoption of the UCC (Uniform Commercial Code) as the template for laws passed in their state.

The problem now is that most judges and lawyers are using those terms that have their own legal meaning without differentiating them; thus the meaning of those “terms of art” are being used interchangeably. This reverses centuries of common law and statutory laws designed to prevent conflicting results. Those laws constrain a judge to follow them, not re-write them. Ignoring the true meaning of those terms results in an effective policy of straying further and further from the truth.

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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So an interesting case came up in which it is obvious that neither the judge nor the bank attorneys are paying any attention to the law and instead devoting their attention to making sure the bank wins — even at the cost of overturning hundreds of years of precedent.

*

The case involves a husband who “signed the note,” and a wife who didn’t sign the note. However the wife signed the mortgage. The Husband died and a probate estate was opened and closed, in which the Wife received full title to the property from the estate of her Husband in addition to her own title on the deed as Husband and Wife (tenancy by the entireties).

*

Under state law claims against the estate are barred when the probate case ends; however state law also provides that the lien (from a mortgage or otherwise) survives the probate. That means there is no claim to receive money in existence. Neither the debt nor the note can be enforced. The aim of being a nation of laws is to create a path toward finality, whether the result be just or unjust.

*

There is an interesting point here. Husband owed the money and Wife did not and still doesn’t. If foreclosure of the mortgage lien is triggered by nonpayment on the note, it would appear that the mortgage lien is presently unenforceable by foreclosure except as to OTHER duties to maintain, pay taxes, insurance etc. (as stated in the mortgage).

*

The “bank” could have entered the probate action as a claimant or it could have opened up the estate on their own and preserved their right to claim damages on the debt or the note (assuming they could allege AND prove legal standing). Notice my use of the terms “Debt” (which arises without any documentation) and “note,” which is a document that makes several statements that may or may not be true. The debt is one thing. The note is quite a different animal.

*

It does not seem logical to sue the Wife for a default on an obligation she never had (i.e., the debt or the note). This is the quintessential circumstance where the Plaintiff has no standing because the Plaintiff has no claim against the Wife. She has no obligation on the promissory note because she never signed it.

*

She might have a liability for the debt (not the obligation stated on the promissory note which is now barred by (a) she never signed it and (b) the closing of probate. The relief, if available, would probably come from causes of action lying in equity rather than “at law.” In any event she did not get the “loan” money and she was already vested with title ownership to the house, which is why demand was made for her signature on the mortgage.

*

She should neither be sued for a nonexistent default on a nonexistent obligation nor should she logically be subject to losing money or property based upon such a suit. But the lien survives. What does that mean? The lien is one thing whereas the right to foreclose is another. The right to foreclose for nonpayment of the debt or the note has vanished.

*

Since title is now entirely vested in the Wife by the deed and by operation of law in Probate it would seem logical that the “bank” should have either sued the Husband’s estate on the note or brought claims within the Probate action. If they wanted to sue for foreclosure then they should have done so when the estate was open and claims were not barred, which leads me to the next thought.

*

The law and concurrent rules plainly state that claims are barred but perfected liens survive the Probate action. In this case they left off the legal description which means they never perfected their lien. The probate action does not eliminate the lien. But the claims for enforcement of the lien are effected, if the enforcement is based upon default in payment alone. The action on the note became barred with the closing of probate, but that left the lien intact, by operation of law.

*

Hence when the house is sold and someone wants clear title for the sale or refinance of the home the “creditor” can demand payment of anything they want — probably up to the amount of the “loan ” plus contractual or statutory interest plus fees and costs (if there was an actual loan contract). The only catch is that whoever is making the claim must actually be either the “person” entitled to enforce the mortgage, to wit: the creditor who could prove payment for either the origination or purchase of the loan.

*

The “free house” mythology has polluted judicial thinking. The mortgage remains as a valid encumbrance upon the land.

*

This is akin to an IRS income tax lien on property that is protected by homestead. They can’t foreclose on the lien because it is homestead, BUT they do have a valid lien.

*

In this case the mortgage remains a valid lien BUT the Wife cannot be sued for a default UNLESS she defaults in one or more of the terms of the mortgage (not the note and not the debt). She did not become a co-borrower when she signed the mortgage. But she did sign the mortgage and so SOME of the terms of the mortgage contract, other than payment of the loan contract, are enforceable by foreclosure.

*

So if she fails to comply with zoning, or fails to maintain the property, or fails to comply with the provisions requiring her to pay property taxes and insurance, THEN they could foreclose on the mortgage against her. The promissory note contained no such provisions for those extra duties. The only obligation under the note was a clear statement as to the amounts due and when they were due. There are no duties imposed by the Note other than payment of the debt. And THAT duty does not apply to the Wife.

The thing that most judges and most lawyers screw up is that there is a difference between each legal term, and those differences are important or they would not be used. Looking back at AMJUR (I still have the book award on Bills and Notes) the following rules are true in every state:

The debt arises from the circumstances — e.g., a loan of money from A to B.

The liability to pay the debt arises as a matter of law. So the debt becomes, by operation of law, a demand obligation. No documentation is necessary.

The note is not the debt. Execution of the note creates an independent obligation. Thus a borrower may have two liabilities based upon (a) the loan of money in real life and (b) the execution of ANY promissory note.

MERGER DOCTRINE: Under state law, if the borrower executes a promissory note to the party who gave him the loan then the debt becomes merged into the note and the note is evidence of the obligation. This shuts off the possibility that a borrower could be successfully attacked both for payment of the loan of money in real life AND for the independent obligation under the promissory note.

Two liabilities, both of which can be enforced for the same loan. If the borrower executes a note to a third person who was not the party who loaned him/her money, then it is possible for the same borrower to be required, under law, to pay twice. First on the original obligation arising from the loan, (which can be defended with a valid defense such as that the obligation was paid) and second in the event that a third party purchased the note while it was not in default, in good faith and without knowledge of the borrower’s defenses. The borrower cannot defend against the latter because the state statute says that a holder in due course can enforce the note even if the borrower has valid defenses against the original parties who arranged the loan. In the first case (obligation arising from an actual loan of money) a failure to defend will result in a judgment and in the second case the defenses cannot be raised and a judgment will issue. Bottom Line: Signing a promissory note does not mean the maker actual received value or a loan of money, but if that note gets into the hands of a holder in due course, the maker is liable even if there was no actual transaction in real life.

The obligor under the note (i.e., the maker) is not necessarily the same as the debtor. It depends upon who signed the note as the “maker” of the instrument. An obligor would include a guarantor who merely signed either the note or a separate instrument guaranteeing payment.

The obligee under the note (i.e., the payee) is not necessarily the lender. It depends upon who made the loan.

The note is evidence of the debt — but that doesn’t “foreclose” the issue of whether someone might also sue on the debt — if the Payee on the note is different from the party who loaned the money, if any.

In most instances with nearly all loans over the past 20 years, the payee on the note is not the same as the lender who originated the actual loan.

In no foreclosure case ever reviewed (2004-present era) by my office has anyone ever claimed that they were a holder in due course — thus corroborating the suspicion that they neither paid for the loan origination nor did they pay for the purchase of the loan.

If they had paid for it they would have asserted they were either the “lender” (i.e., the party who loaned money to the party from whom they are seeking collection) or the holder in due course i.e., a third party who purchased the original note and mortgage for good value, in good faith and without any knowledge of the maker’s defenses). Notice I didn’t use the word “borrower” for that. The maker is liable to a party with HDC status regardless fo whether or not the maker was or was not a borrower.

“Banks” don’t claim to be the lender because that would entitle the “borrower” to raise defenses. They don’t claim HDC status because they would need to prove payment for the purchase of the paper instrument (i.e., the note). But the banks have succeeded in getting most courts to ERRONEOUSLY treat the “banks” as having HDC status, thus blocking the borrower’s defenses entirely. Thus the maker is left liable to non-creditors even if the same person as borrower also remains liable to whoever actually gave him/her the loan of money. And in the course of those actions most homeowners lose their home to imposters.

All of this is true, as I said, in every state including Florida. It is true not because I say it is true or even that it is entirely logical. It is true because of current state statutes in which the UCC was used as a template. And it is true because of centuries of common law in which the current law was refined and molded for an efficient marketplace. But what is also true is that law judges are the product of law school, in which they either skipped or slept through the class on Bills and Notes.

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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For years the banks having been gradually ramping up a PR campaign that carries the message: the foreclosure crisis is over. “Institutions” like Black Knight (formerly known as the infamous Lender Processing Services —LPS) have been issuing statements that foreclosures are essentially over. The newest round of these false pronouncements is that foreclosures have sunk to a 9 year low.

The truth is more nuanced and “counter-intuitive” as Reynaldo Reyes, VP of Deutsch Bank “asset management” said many years ago. What the banks have done (using LPS/Black Knight) is play Wackamo with the states and counties. They ramp up foreclosures to an all time high and then switch to another county. Then the report is that the county with the all time high is now declining — because the banks have moved on to another county or state.

After the decline, they come back again and ramp it back up, sometimes stopping short of another all time high.

The facts are that there have been some 9 million foreclosures since the mortgage crisis began and there will be at least another 6 million foreclosures under cover of what is being reported as a crisis that is over. There are hundreds of thousands of foreclosures that were put on hold in cases where the homeowner put up a fight. Some of them are over ten years old — and courts, rather than dismissing them for lack of prosecution or adequate prosecution have (a) let them continue and (b) blamed the homeowner for the delays. Those cases are also coming to a head now and the banks are starting to show losses in court that were never reported before because they were only pursuing cases that were uncontested.

The truth is that the banks were playing the odds. The number of homeowners who put up a fight is only around 4-6%. By putting the contested foreclosures on hold, the banks were able to get millions of fraudulent foreclosures completed at a rate of 100%. Out of the contested ones, they still have the advantage much there record of success is much lower and getting lower every day as courts wake up to the fact that the banks are not being truthful in court nor with borrowers.

The soft underbelly is that the banks were not truthful with investors, from whom they essentially stole the money that was advanced for the purchase of mortgage backed securities that were issued by empty trusts.

PRACTICE HINT: There are three basic classifications of foreclosures into which every foreclosure falls.

Foreclosures without “issues.”

Foreclosures with factual issues

Foreclosures with procedural issues.

The first two can be won and should be won 100% of the time (speaking of loans in which multiple “transfers” and claims of securitization were made). The third one can be more challenging because either the pro se litigant or an attorney made admissions or already missed deadlines or otherwise failed to raise and press appropriate defenses.

The result of winning is an involuntary or voluntary dismissal when you win, but then you have the statute of limitations to deal with when they come back and sue again on more fraudulent paperwork. Attorney fees are generally awarded as long as you included the demand in the filings for the homeowner.

By foreclosures without issues I mean an apparent “default:” that the homeowner did stop making payments before the delinquency or default letter. These cases can only be won by good trial practice: timely proper objections, watching what evidence comes in and well-planned cross examination (which means good trial preparation). If you do the work your chances of winning at trial level or appeal, if necessary are very good.

By foreclosures with factual issues I mean situations in which the “servicer” created the illusion of a default by negligently or intentionally posting payments to the wrong ledger. This includes lump sum payments for reinstatement, insurance and other matters. The “borrower” never defaulted even if the note and mortgage were valid and even if the assignments were valid. The result is dismissal usually without prejudice. But if you also show that they were lying about the transfer to the trust or other foreclosing party, the case could be dismissed with prejudice and even with sanctions.

By foreclosures with procedural issues I mean situations in which procedural errors are present that require leniency of the court to correct them in order to properly defend. This usually occurs when pro se (aka pro per) litigants attempt to represent themselves because they think they have found some magic bullet. 95% of such cases are lost thus skewing the overall percentage of wins and losses for homeowners who put up a fight.

No case falls 100% into any specific category but each case can be generally categorized using the above analysis.

In all cases the homeowners’ attorney should make every effort to destroy the case asserted by the foreclosing party through vigorous and timely objections and brutal cross examination. Depending upon the rulings on objections and motions to strike testimony or documentary evidence, the defense should rest if there are no factual issues to present. This is especially true in cases without issues. If you don’t have the defense of payment or that the demand for reinstatement was inaccurate, there is nothing to present by the homeowner except for attempts at prejudicial comments about the lawyers and the servicers etc.

In a recent (August, 2016) case I had “without issues”, Patrick Giunta and I surprised the opposition by resting at the conclusion of the bank’s case. In nonjudicial states this is not so easy to do procedurally although it is possible in isolated instances. By resting at the conclusion of the bank’s case in a judicial foreclosure, the judge is forced to consider whether the evidence on the record supports a judgment for the plaintiff. Some judges will rule for the bank by the seat of their pants.

But by using objections vigorously, we had preserved multiple issues on appeal — namely we had excluded many pieces of evidence that were vital to the Plaintiff’s case. We were fortunate to have a judge that was serious about his job of being a judge. Like a jury would do, the judge took the case, the filings and the evidence into Chambers and read every page. He concluded that there were fatally defective elements and missing elements in the Plaintiff’s case and announced judgment for the homeowner.

In the final analysis the issue is always tacitly or explicitly legal and procedural standing. And one thing to keep in mind is that trial judges are not entirely persuaded by legal argument. But they ARE persuaded by facts admitted into evidence and facts excluded from evidence.

On a final note, I want remind practitioners that the admission of an objectionable document into evidence does two things: (1) it raises an issue for appeal and (2) it opens the door to challenge the probity of the evidence admitted. Once a document is admitted into evidence, it is in — in its entirety and for all purposes and for all parties.

For example when the PSA is admitted into evidence, make sure you have examined it and raise issues on cross examination as to whether it was signed, whether the exhibits were complete etc. Of course the main exhibit is the Mortgage Loan Schedule (MLS) which never contained real loans even where the PSA was complete and in many cases has no actual MLS exhibit, thus defeating the assertion that the Trust ever acquired any loan much less the loan of your client.

The Big Question:

How can there be a declaration of default

when the creditor is showing no default and no loss on its books?

I have been through the ringer myself, as the homeowner in the article linked above said about himself. We have a steady policy of the banks luring homeowners into default or luring them into deeper defaults. The reason is clear. They want the foreclosure — not the house and definitely not the money owed. As one BOA manager said “we are in the foreclosure business not the modification business.” The facts are always the same: the homeowner is faced with two choices based upon the information that comes from the only source he or she knows about — the party claiming to own the loan or claiming the authority to service the loan. In nearly all cases neither representation is true.

The two choices are to find another way to get help from friends and relatives (i.e., forget about modification) or go into a default. The message is perfectly clear that the “customer representative” is inviting them to go into default. But they have a script that carefully avoids the direct words of “I am telling you to go into default.” And so nearly all judges say that this is not illegal legal advice and not fraudulent misrepresentation, even though the homeowner is told that there is nobody else they can talk to about their loan.

Millions of homeowners were looking for modification rather than a free house — mostly on loans that had reset to unaffordable monthly payments that were not properly disclosed at closing and which should never have been approved by any legitimate underwriting process. In fact, such loans were never approved prior to the era of the illusion of securitization in the secondary markets where mortgage loans are bought and sold. Industry practices, rules and regulations preventing banks from approving loans in which it was obvious that some or all of the terms would be breached based upon current information. So if a borrower is approved for a mortgage with a teaser payment of $500 per month in a household that grosses $50,000 per year, it is obvious what will happen when the payment resets to $5,000 per month ($60,000 per year) — $10,000 more than their entire income.

The ONLY reason why such loans were approved is that the banks were not putting the bank at risk in such loans and were making money hand over fist in the “secondary” markets that were completely under the control of the same banks. They sold that loan as though the $5,000 per month would be paid — and even had ratings and insurance indicating that the loan was “low risk” when the bank knew for sure that default was imminent due to the reset of the amount of payments. And in fact, payments were made to the investor creditors just as expected —> but paid by the investment bank as “Servicer advances.”

But were they really paying the certificate holders in REMIC Trusts? Yes, but they were paying investors out of their own money which was hijacked into a commingled slush fund. But since they were called “servicer advances” that are now being bundled as derivatives and sold to the same investors as securitized debt, it is the SERVICER who has a claim for the advanced money even though it wasn’t their money that funded the “advances” which were really refunds out of the money paid by the investors themselves.

The banks created this scheme so that investors would remain ignorant that anything was wrong with the portfolio despite mountains of delinquencies that were DECLARED BY THE SERVICER to be “defaults.” And so the investors would buy more “mortgage backed” securities they were neither mortgage backed nor securities because the Trust never saw a penny of the offering of mortgage backed bonds and never operated nor purchased nor received ownership of the loans.

Those “advances” or refunds or whatever you want to call them can be “recovered” (I would say stolen) by the investment banks masquerading as the Master Servicer of a REMIC Trust that existed only on paper and not in the real world. But they can only “recover” those advances (that they are quickly selling to investors through new securitization schemes) if the property goes into foreclosure. If the property is foreclosed then the servicer no longer needs to make advances although in many cases it continues to do so in order to keep the investors in the dark. But more importantly it is ONLY when the property is sold that the “Master Servicer” can “recover” those servicer advances.

It’s complicated. But if you stop for a moment and put pencil to paper suddenly the reason for those long delays in prosecuting foreclosures becomes crystal clear. The investment bank is using the investor money to make “advances” to the investor to make good on the expectations of the investor in receiving income from their “investment.” Since the investment bank is not actually making the advances, the “receivable” due to the investment bank under this convoluted scheme increases with each passing month (without any corresponding liability or expense). So the investment bank that controls the slush fund where investor money is kept, makes payments to the investor for the amounts due regardless of whether the borrowers are paying.

In the example above, they want to keep that time running as long as possible. By making advances of $5,000 per month, that is $60,000 per year and over an 8 year period, for example, the receivable is now $480,000 without the bank having to spend one dime and in fact, actually collecting fees during the entire time at a premium rate for those loans that are distressed. So they have a $480,000 asset waiting. But there is a catch. They can only get the $480,000 if the property is foreclosed and the property is sold. It is only out of the sale proceeds that the bank as “master Servicer” can lay claim for its $480,000. Of course in the end the investors get screwed because that $480,000 was their money and THEY should have received it. But they didn’t and they don’t. Just read the prospectuses on the bundling of “servicer advances.”

So Wells Fargo and other banks adopted strategies that lure homeowners into default and get them believing and hoping they will get a modification when in fact they don’t give the modifications at all. In truth they are neither authorized to collect the money nor enforce the obligation because their so-called authority comes from the PSA for a REMIC Trust that was never used, never funded, never in operation. And they do it in a variety of ways—

Here are some excerpts from the article in the above link from about a year ago:

Occupy.com Article

Wells Fargo put them “through the ringer”. “We were happy living in a rural-suburban area. Time went by quickly. One thing that we always did was pay our bills on time. We took pride in our credit score, which were 760 each. We were so proud when we needed a new car we could just “walk” off the lot with it. [I’m] not sure what happened, where everything went wrong. I actually believe it was President Obama telling Americans to apply for a Home Affordable Modification Program (HAMP) loan. When job loss occurred in our family, I was aware that we would qualify for that loan and I called Wells Fargo to inquire. They put us through the ringer. That is what started our tumble down the credit hole. Wells Fargo approved a forbearance agreement, while we submitted a HAMP application in 2009.” – See more at: http://www.occupy.com/article/how-wells-fargo-fraudulently-foreclosed-florida-homeowner#sthash.iIM39zPY.dpuf

[HAMP had been introduced by the Obama administration as a tool to help homeowners keep their homes. It turned out that the yellow brick road led many into foreclosure disasters – a prolonged disaster that kept homeowners’ hope alive while chipping away their savings, their equity, and ruining their credit scores. Americans were watching in disbelief while the servicers and banks didn’t comply with the HAMP requirements, continued with dual tracking (processing modifications and foreclosing at the same time), pushing homeowners towards in-house modifications even when they qualified for HAMP, and many other irregularities.] – See more at: http://www.occupy.com/article/how-wells-fargo-fraudulently-foreclosed-florida-homeowner#sthash.iIM39zPY.dpuf

This is when the games began,” continued J.S. “The forbearance ruined my credit score. Every fax I sent to Wells Fargo has not been received – that’s what their representatives claimed. Week after week, always [with] a two-week lag. Always something missing. Then I started my Internet research on “lost paper work” and I found Living Lies website, which led to Foreclosure Hamlet, and now Facebook. My search for answers brought many wonderful people in my life together with the answers and they helped me through the darkest moments of my life. [Editor’s note: Ruining the credit score of the homeowner is key to insuring a foreclosure. If their credit score remained high they would be able to refinance and the investment bank as Master Servicer would have no claim for “servicer advances.”]

“In 2009 I was informed by a Wells Fargo representative that I may not be approved because someone moved my application out of the review folder from her computer! Their incompetence was limitless. Eventually I was approved for a modification, but it was more than my original mortgage. However, I wanted to save my house at all costs. At this time I had a good job. [But] after the BP oil spill my salary was cut in half and I re-applied for the HAMP loan in 2010. – [Editor’s Note: I have personal knowledge and tape recordings of Wells Fargo employees speaking without realizing they were being recorded by their own system. In those recordings they acknowledged that images and data from one borrower was mixed in with another. They agree that they shouldn’t admit that to the borrower. Then Wells Fargo blames the borrower for not having sent the required documentation which they have had all along or destroyed. Evidence in a case involving BOA and other banks shows that on a periodic basis the banks simply destroy all applications and submissions by borrowers.]

“I was told by Wells Fargo that we had to be 90 days late before they would consider my HAMP loan application. At that time, I still had a great credit score, and now they were telling me to actually STOP PAYING MY MORTGAGE. I think that I literally freaked out then. I didn’t want to lose my home.” [This is the big one. And up till now it has been foolproof. Most homeowners are unaware of the news or history of other borrowers. So when they are told about the “90 day” requirement, they think they don’t qualify for relief unless they withhold payments for 90 days. But that isn’t true for two reasons — the bank is only telling them about the policy of Wells Fargo, not the investors (sometimes Fannie or Freddie). The bank is creating the impression that they are a reliable source of information when in fact they are lying to the borrower in order to get them into default, foreclosure, sell the property and then claim “Servicer advances.”]

“After reluctantly not paying my mortgage for 90 days, I was able to apply for a HAMP loan. Again every fax I sent was lost. I didn’t know what to do anymore. My frustration reached its limits and I realized that next time I will FedEx my documents, so they can’t lose it, since there will be a tracking number as a proof of delivery. The new HAMP application letter stated that paper work was due on or before Feb. 14, 2011. I gathered everything and sent on Feb. 3, 2011. It was received on Feb. 4, 2011, and signed via FedEx tracking. On Feb. 16, 2014, I received a letter from Wells Fargo that my documents were not received. WHAT? I called them right away. They say they never received my package. After I cried over the phone, their representative sounded very upset and finally told me, ‘We have some of your documents, but things are missing.’ – See more at: http://www.occupy.com/article/how-wells-fargo-fraudulently-foreclosed-florida-homeowner#sthash.iIM39zPY.dpuf

So here is absolute proof that the real party in interest in the foreclosures are the unsecured servicers and also proof that the “default” never occurred. Notice how Freddie Mac figures in. Despite all denials and lies in court it is obvious that the servicers are, through one means or another, advancing payments to the certificate holders regardless of the payment status of the borrowers. And there are other people paying the creditors (certificate holders) as well. That means the secured creditors of the homeowner got paid, which means there is no default and they never declared one.

And THAT is why you rarely see US Bank as Trustee for the blah blah Pass through Certificates Trust hereby declares a default in your obligation; they don’t say that because neither the Trust nor the certificate holders have been short-changed, even as the servicer declares a default and moves toward foreclosure. This also explains why they don;t modify nearly as much as they should — they don’t collect their servicer advances that way. They only collect when there is a foreclosure and the property is sold. Why do they make those payments? Simple: They pay the certificate holders (1) so the certificate holders (investors) are kept in the dark about the real quality of the loan pool and (2) to lull the investors into a false sense of security such that they buy more of these worthless mortgage bonds.

The new “creditor” is the servicer who made the advances BUT they are unsecured. The only reason for the push for foreclosure is to make money selling new certificates of new securitization vehicles based upon the repayment rights of the servicer NOT the payments of the borrower. That means that the only party interested in the foreclosure is the servicer who (a) wants to stop making payments and (b) wants to collect on the unsecured volunteer payments the servicer made to creditors of the homeowner.

The story is that the servicers need to borrow the money in order to pay the certificate holders, but that isn’t true. They would never take that risk when the whole model is based upon the absence of risk. A close look at any REMIC prospectus, reveals a provision that says that some of the money of investors will be deposited into a pool that can be used to pay the investors their expected return on investment — i.e., their own money. Yes it’s a Ponzi scheme, but it is disclosed (not that anyone read it). AND the truth is that ALL of the invested money was pooled into accounts that had nothing to do with the REMIC trust.

And THAT is why the banks cannot connect the dots between the alleged loan closing, at which investor money was being used, and the paperwork which shows payees on the note and mortgagees on the mortgage as parties who have no relationship with the investors whose money was used to fund the loan. Bottom Line: The Banks are stealing from both ends.

Excerpts from the article:

There are some new features that issuers have to build into servicer advance trusts under the new rating criteria but “it’s been workable and issuers are finding ways to get deals done that work,” said Tom Hiner, a partner at law firm Hunton & Williams who has advised on a number of such transactions.

The advance facility is backed by reimbursement rights to private-label mortgage-backed securities.

In June, Ocwen completed $450 million servicer advance refinancing of its Freddie Mac financing facility (formerly OFSART). The transaction securitizes the reimbursement rights to funds advanced on mortgages insured by the government-sponsored enterprise. S&P’s ratings on the notes issued by the deal, Ocwen Freddie Advance Funding LLC’s series 2015-T1, 2015-T2 and 2015-VF1, ranged from AAA to BBB and pay a weighted average interest rate of 2.225%.

In a July conference call discussing second-quarter earnings, Ocwen executives said the deal was positively received; it was upsized by $50 million and the advance rate on the notes was 8 percentage points higher than the facility it refinanced.

Hiner expects much of the market activity in the next two quarters to come from refinancing portions of the often unrated variable funding note commitments extended by bank lenders during the S&P moratorium on rating deals with term ABS.

This trend could result in a total of 10 to 12 term ABS deals by the end of the third quarter, according to Hiner.

The new deals have new features to address S&P’s recalibrated rating methodology, which takes into account the potential for extended timelines for reimbursements, the liquidity risk of the notes under stressed conditions, and the servicer’s ability to continue advancing based on its credit quality.

Timelines are further adjusted based on the actual recent experience of the servicer in recouping advances. The criteria establish “standard” reimbursement curves along with “above standard” and “below standard” ones for different advance types and rating scenarios.

The new methodology also includes a more stringent liquidity reserve fund requirements; this requirement varies according to the geographic diversification of receivables in the master trust.

“In a high-stress scenario, you could have potential issues where you didn’t receive cash from the receivables because you may not be liquidating properties as quickly,” said Jeremy Schneider, the agency’s director of RMBS ratings.

Hiner also expects to see more additional deals backed by repayments rights to advances on agency mortgages, similar to Ocwen’s. While servicing mortgages guaranteed by Fannie and Freddie is not as capital intensive as servicing nonagency mortgage securitizations, Hiner thinks that more participants with agency servicing portfolios will look to the ABS market for funding.

S&P’s older criteria for rating servicer advance receivables securitizations was not tailored for agency RMBS, simply because it had not seen many deals backed by IOUs from Fannie and Freddie. “But now there is more of an appetite,” said Waqas Shaikh, S&P’s managing director for RMBS ratings. The new criteria takes this into account.

Nationstar is the only other issuer to previously place agency notes under its Nationstar Agency Advance Funding Trust in January 2013.

There might not be any more deals from New Residential, however. The REIT said during its second-quarter earnings call that it has $3.5 billion of additional financing to fund increased balances of servicer advance receivables and upcoming maturities. The company acquired $5.1 billion of reimbursement rights through its purchase of HLSS; its portfolio now totals $8.5 billion.

And Ocwen, which has so far sold $66 billion of agency MSRs, is in the process of selling another $25 billion, according to its second-quarter earnings report. However, the issuer intends to remain in the agency space. On the company’s April 30 conference call to discuss operating results for the first quarter, CEO Ron Faris said Ocwen did not intend to sell any of its Ginnie Mae MSRs and would not completely exit GSEs or servicing or lending. The issuer still has $34 billion in GSE servicing rights and approximately $8 billion of GSE subservicing, and plans to continue to originate and service new Fannie Mae, Freddie Mac and FHA loans.

However, Ocwen executives said that they remain “optimistic” that the company will eventually be able to resume purchasing mortgage servicing rights based on discussions with the New York Department of Financial Services and the California Department of Business Oversight. The servicer’s ability to acquire new MSRs is currently restricted as part of last year’s settlements with the two regulators over its practices.”

Dan Edstrom senior forensic analyst for livinglies, says –This article lists many of the major servicers – some of whom have outright denied making payment advances in response to discovery from homeowners …

So homeowner is obligated to make payments

The note references others obligated also (guaranty / surety)

The PSA references the obligation and requirement to make advances of principal and interest

The PSA references the ability to make use of an “advance facility” to fund advances

The funds from the advance facility investors are funneled through the trust to certificateholder investors to cover all payments that were required but were not made on the pool of loans in the trust

The servicer skims off their fees from the funds, which means they were paid their servicing fee even though the homeowner may not have made any payment

And of course the advance facility is a securitization, so there are other fees that are now spread across each of the “loans” that have missed payments, adding to the costs and fees charged to the homeowner and most likely ultimately paid by the original trust investors (it costs them money for the process where by they are paid even though the loan payments are not performing, and then the payments are pulled back from them later when the property is “liquidated” by foreclosure, shortsale or whatever).

The entire process is a scam. The investors would make more money of loan workouts were done instead of forcing homeowners into foreclosure.

As I write this, I have no recall of Mr. Ludden before today. BUT his article in of all places, the Cape Cod Times, struck me as astonishing in its concise description of the illegal foreclosures that are skimming past Judges desks with hardly a look much less the usually required judicial scrutiny. He says

No one should have the legal right to take your home merely by winking and nodding their way around a significant flaw in the securitization model and whatever burrs it may leave on the industry’s saddle. …

Is there anyone with a present contractual connection to you or the loan who has actually suffered a default? If not, any… foreclosure begins to bear an uncanny resemblance to double dipping.

It is time for Judges to dust off the principle of fundamental fairness that lies at the heart of our legal system, demand a level playing field, and stand behind alternatives to foreclosure that serve the legitimate interests of homeowner and industry alike.

His article is both insightful and concise, which is more than I can say for some of the things that I have written at length. And I guess if you are in the Cape Cod area it probably would be a good idea to contact him at rpl@luddenkramerlaw.com. He pierces through layers upon layers of subterfuge by the financial industry and comes up with the right conclusion — separation not just of note and mortgage — but more importantly the separation between the note and the ultimate certificate that spells out the rights of a creditor to repayment and the rights of anonymous individuals and entities to foreclose. In securitization practice the note ceases to exist.

He correctly concludes that the assignments (and I would add endorsements and powers of attorney) are a sham, designed to conceal basic flaws in the entire securitization model. The only thing I would add is something that has not quite made it to the surface of these chaotic waters — that the money from the investors never made it into the trust — something that is perfectly consistent with ignoring the securitization model and the securitization documents.

The ‘assignment’ creates the appearance of [the] missing connection. But it is all hogwash, the only discernible purpose of which is to grease the skids for an illegal foreclosure. It is done long after the Trust has closed its doors. [referring to both the cutoff date and the fact that the trust actually does not ever get to own the debt, loan, note or mortgage]

The banks kept the money and assigned the losses to the investors. Then they bet on the losses and kept the profits from their intentionally watered down underwriting practices. Then they stole the identity of the borrowers and the investors and bought insurance that covered “losses” that were never incurred by the named insured — the Banks. The family resemblance to Ponzi scheme seems closer than mere double dipping in an infinite scheme of dipping into the funds of thousands of institutional investors and into the lives of millions of homeowners.